As California continues to work towards legalizing and regulating online poker there have been a number of problems, disagreements, and hurdles that have needed to be overcome; at times it seems as if they are encountering new obstacles faster than they can solve the old ones.
The latest issue being the Santa Ysabel tribe’s decision to go it alone and offer online poker, citing their belief that online poker falls under the Class II Gambling designation in the 1988 Indian Gaming Regulatory Act (IGRA) and is therefore perfectly legal for the tribe to offer on their own volition.
The Santa Ysabel’s threatened launch of an online poker room without any type of legislation being passed has led to a number of arguments dealing with everything from Class II Gambling needing to be redefined by Congress, to the suitability of entities that are supposedly assisting Santa Ysabel in their online endeavors.
However, there is also a very applicable issue that needs to be addressed in what the Santa Ysabel Indians are trying here: The need for a restructured or new revenue sharing model among California tribes.
The Current System
Under the current agreement tribes with more than 350 gaming machines / devices set money aside with the state gaming commission in what is known as the Revenue Sharing Trust Fund (RSTF). This money is then doled out to certain non-gaming tribes and tribes with 350 or fewer gaming devices / machines – so if you ever wonder why so many tribes in California have specifically 350 machines and never 351, you now have your answer.
Each non-gaming tribe and tribe with under 350 machines (there are a total of 61 tribes that are part of the RSTF either as contributors or beneficiaries) that is part of this agreement receive $1.1 million per year.
If you’re interested, here is a great overview of the RSTF from the National Law Review website.
However, this revenue sharing model is based on Class III Gambling (slot machines, table games and house-banked card-games), which doesn’t cover poker revenue, as poker is considered Class II gambling under the Indian Gaming Regulatory Act (IGRA) – poker is not specifically mentioned but falls under the non-house-banked card games heading.
On the other hand, online poker is currently not classified as either Class II gambling or Class III. In fact it’s not classified at all.
There is an argument to be made that poker is poker, so it should be Class II gambling, but another side argues that the gambling doesn’t occur on tribal land (proponents of this argument feel the bet is placed where the player is and not where the internet servers are) so there is still quite a bit of legal gray area that needs to be worked out.
Because of this, online poker in California is going to need a new or amended revenue sharing agreement that specifically covers online poker, distinguishing it as either as Class II (and adding this to the revenue sharing agreement) or some other Class of gambling, otherwise smaller tribes will not benefit in any way from the expansion into online poker.
Why revenue sharing would help online poker
A fair revenue sharing deal in California would achieve several aims:
First, it wouldn’t put smaller tribes, who are unable to afford the cost of a license (presumably in the $5 million to $10 million range) and unlikely to be capable of raising the capitol needed to create and launch an online poker room, on unequal footing with the larger gaming tribes.
And this inequity has not been lost on the smaller tribes, including Santa Ysabel, as the Santa Ysabel Gaming Commission website states:
… The current proposed legislation excludes all but the wealthiest gaming tribes from engaging in state-regulated online gaming. Smaller or remotely located tribes, like Santa Ysabel, would not be able to meet the financial prerequisites for participation in online gaming as currently proposed…
Secondly, it will limit competition to a manageable number of online poker rooms by making it financially beneficial for most tribes to pass on online gambling and instead draw from the revenue sharing trust fund.
With smaller tribes benefitting from the success of the larger tribes who do get involved in online poker there is little reason for them to try to launch their own online poker sites. This revenue sharing model has worked well for California in terms of casino gaming and should limit (in a good way) potential competition for California’s still hypothetical online poker industry.
Who is for and who is against Revenue Sharing
No tribe is publicly against setting up an online poker revenue trust fund, but some tribes have been more vocal about making sure the smaller tribes get their piece of the pie.
One of the most vocal is the Morongo Band of Mission Indians, who have stated multiple times that revenue sharing needs to be included in any online poker bill (it currently isn’t) if the tribe is going to throw their support behind it – of course the Morongos larger issue is the bad actor / tainted asset clauses currently being pushed.
Race tracks may need to be cut in as well
In addition to the tribal revenue sharing, the current plan includes card rooms that already offer poker and meet certain other criteria, along with tribal casinos that offer poker and meet certain other criteria (read as: have money and political power): Everyone else will be shut out, including small tribes, small card rooms, and race tracks.
Race tracks are definitely feeling left out, and they are likely to get even more vocal if smaller tribes are cut in via revenue sharing while the race tracks are left on the side of the road.
Race tracks may not be the political power players they use to be, but they do still have some clout and are aligned with labor unions as well, so they are not to be trifled with.